Siemens tries its hand at incubating startups

…not all of which are spinoffs of its own; some are strategic investments in external inventions they believe they need. This is another great isgn of the realignment of expectations for corporate venture activities…

Deep within Siemens AG, one of the world’s largest companies, lies a tiny technology incubator.

In Berkeley, Calif., eight small companies, each with the financial backing of Siemens, are in the start-up stage. Siemens backs the companies — most of which share space in the same building and some of which began with the proverbial “inventor-in-a-garage” status — through a program it started six years ago called Technology to Business.

The program provides companies with seed-stage financing of around $500,000 and helps with early commercialization. In return, Siemens gets a percentage of each company and access to new technologies that can aid the German engineering giant’s own businesses.

“TTB was created as a model to bring technology and innovation that are outside into Siemens,” said Stefan Heuser, president and chief executive of TTB since last year. “It’s an outside-in approach. We’re like an early-stage investor.”

The program looks for technologies that fit into Siemens’s businesses, but doesn’t prevent the small companies from eventually seeking outside venture financing and selling to other customers. The companies can move out on their own when they are ready. However, some entrepreneurs who hitch up with TTB do so knowing Siemens will make a solid customer for their products.

For instance, Amine Haoui, CEO of wireless-sensor company Sensys Networks, came aboard TTB two years ago, hoping Siemens would have a number of applications for his technology.

“I felt very strongly that, in our type of business, a partnership with a large corporation from the get-go would be very useful,” said Mr. Haoui, whose company makes traffic-monitoring systems used by government agencies. “With Siemens being the dominant traffic vendor in the world, it made a lot of sense to me. We’d know the market a lot better and get faster access to customers.”

Within two months of receiving financing from Siemens, Mr. Haoui and his team were getting a grand tour of Siemens’s industrial divisions in Germany and the U.S. “We got access to people it would have taken two years to [meet] on our own,” Mr. Haoui said.

Aleks Goellue, CEO of PINC Solutions, whose technology helps companies track products before they are shipped to customers, said it wasn’t a difficult choice to couple with Siemens’s TTB.

“Even though my previous start-up was funded with traditional venture capital from Day One, I preferred not to directly try to fund-raise” this time around, Mr. Goellue said. “Back in 1998, you could just present your idea. Now, VCs want a lot more traction,” he said, referring to venture-capital investors.

Another advantage is that at the TTB facilities, Mr. Goellue said he is able to exchange ideas with both Siemens’s employees and with people from other seed-stage firms whom he bumps into in the hallway.

In return for the seed-stage investment in Mr. Goellue’s company, Siemens obtained an ownership stake and also will have contracts under which PINC will build certain products for Siemens. Although PINC plans to seek additional financing from traditional venture-capital firms, “the relationship with Siemens will stay even when we graduate out of TTB,” Mr. Goellue said.

Could the relationship with Siemens become an impediment? Mr. Haoui doesn’t think so.

“We have an investment from Siemens and a partnership with them, but there are no strings attached,” he said. “There were instances where we talked with Siemens’s competitors in the market and I had to explain to them that we could work with them if we wanted to.”

Siemens’s Mr. Heuser compares the difference between classic corporate research-and-development efforts and TTB to that between farming and hunting. “You work on technologies for years and develop things, just like developing a crop and harvesting it again and again,” he said.

But with TTB, “The idea behind this was to go in a more hunting direction, looking for technologies outside of Siemens’s R&D, looking for ideas from the start-up community and universities,” Mr. Heuser said.

Siemens and a host of other companies have venture-capital arms, and 40 are corporate members of the National Venture Capital Association. But Siemens goes further than most with TTB and other programs, said David Spreng, managing partner with Crescendo Ventures and a board member of the NVCA.